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Our sustainability goals and the price of carbon

This is an interesting article talking about the price of carbon and where it will need to go if we are to get to zero carbon emissions by 2050. The current price of carbon on the EU’s Emissions Trading System is around $59 per tonne. But according to the OECD, carbon will need to be closer to $150 per tonne by 2030 to keep the world on track with its sustainability goals. What this means is that if you emit carbon, it will get more expensive to do that.

The article also suggests that there is talk of a minimum price on carbon that would slowly increase over time. This would provide greater certainty to investors who are buying/trading carbon, while at the same time encouraging a broader push away from carbon emissions. This proposal has been backed by the Net-Zero Asset Owner Alliance, which is a group of companies that collectively represent about $6.6 trillion of assets under management.

I think it is clear that we are headed in this direction. But it is going to be an expensive transition. Take, for example, the case of new buildings. Many/most cities now have sustainability goals that similarly increase — become more stringent — over time. The thinking is that this gradual transition allows the development industry to incrementally adapt. Makes sense.

However, there are real challenges. Generally speaking, these new targets increase the cost of building. The result is a set of opposing forces. We want more sustainable buildings, but we also want more affordable housing. The problem is that the former often works against the latter, even though it is the right thing to do. And so it is not only about the industry catching up to new targets, it is also about the market catching up through higher rents and higher sale prices.

My view is that offsets and subsidies are important to rebalancing some of these forces. Because without them, it is likely that we are doing things that run counter to each other.

1 Comment so far

  1. The article mentions 64 global trading schemes, but doesn’t say where the money goes. If it doesn’t go into public revenues, it is not being done right. The carbon price can be used to replace taxes, or even to provide for more affordable housing directly. It is justifiably called a carbon TAX. If it’s not large enough to make a difference, it needs to be increased.
    Better yet, there should be a shift off taxing buildings and onto taxing land, the inelastic need that only gets better used when it’s taxed. Land in dense urban areas is the most valuable and would be taxed the highest. This would bring the price of land down, while the untaxing of improvements, like new buildings, would increase the incentive to build. A carbon tax supplements that, but the tax on land will naturally be higher. Wherever a land value tax has been applied, the result has been much higher levels of building, fewer urban parking lots and other low uses of urban land, and a reduction in hoarding and speculation upon land.

    Liked by 1 person

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